OTTAWA, June 30 —Just hours before its digital services tax was set to take effect, Canada reversed course late Sunday, scrapping the measure in a last-ditch effort to revive trade negotiations with the United States.
The move comes amid heightened tensions between the two countries after U.S. President Donald Trump abruptly cut off trade discussions on Friday, describing Canada’s tax plan as a “blatant attack” on American technology giants.
“Canada has always preferred a multilateral agreement related to digital services taxation,” the finance ministry said in a statement announcing the reversal. It confirmed that the collection of the tax, which was set to begin Monday, would be suspended and that legislation to repeal the Digital Services Tax Act will be introduced.
Finance Minister François-Philippe Champagne is expected to table the repeal in Parliament in the coming days.
The proposed tax—initially announced in 2020—would have imposed a 3% levy on revenues from digital services earned by companies with more than USD 20 million in annual revenue from Canadian users. Crucially, the tax was to be applied retroactively to 2022.
Tech firms likely to be affected included Amazon, Google parent Alphabet, Meta, and Apple.
According to Canadian officials, the measure was designed to address the fact that “many large technology companies operating in Canada may not otherwise pay tax on revenues generated from Canadians.” But U.S. trade officials argued that the policy violated Canada’s obligations under the North American trade pact.
In 2024, the Biden administration requested formal consultations on the issue through the agreement’s dispute settlement framework. That challenge remains unresolved.
Trump, who has previously taken a combative approach to trade, doubled down on his opposition over the weekend. Speaking from a campaign stop in Pennsylvania, he warned of retaliatory tariffs on Canadian goods.
“We will not allow unfair taxation of American innovation,” Trump said. “If Canada reinstates this tax, they’ll see a tariff wall like never before.”
The disruption threatens to unravel recent efforts to stabilize economic ties between the two countries. Prime Minister Mark Carney and Trump met on the sidelines of the G7 summit earlier in June and agreed to finalize a new trade framework by July 21. However, the talks collapsed shortly afterward, casting doubt on that timeline.
Canada is the United States’ second-largest trading partner after Mexico. In 2024, bilateral trade totaled over USD 760 billion, with Canada importing USD 349.4 billion in U.S. goods and exporting USD 412.7 billion to its southern neighbor, according to U.S. Census Bureau data.
Although Canada was spared from Trump’s sweeping tariff hikes in April, it continues to face 50% duties on steel and aluminum exports.
Whether Sunday’s reversal will be enough to restore trust and bring both sides back to the table remains uncertain. For now, officials on both sides are working under pressure to reach a breakthrough before the July 21 deadline.
